Factors influencing firm’s local business environment in home country context

Abstract

Purpose Indian and Chinese businesses are slowly making advances in each other’s markets. The purpose of this study was to understand factors that influence the business environment of a country and how does it compare between India and China. Design/methodology/approach The study uses firm-level survey data from the World Bank’s Enterprise Surveys. The study considered survey data for 2,700 Chinese firms and 9,281 Indian firms. Exploratory factor analysis and structural equation modeling were used to analyze the factors that drive the business environment in both countries and why differences appear. Findings The data set reveals different factor structures for India and China. Across both the countries, infrastructure support and governance play a major role in shaping the business landscape, though in the case of India, regulatory dynamics play a crucial role. The study concludes that these differences drive the basic difference in business environment across both countries. Research limitations/implications The study considers only the formal sector, and informal businesses have been left out because of paucity of data. The dynamics of informal business sector can be considered for future studies. Practical implications While making market entry or investment decisions globally, businesses can analyze country-specific environmental factors through this framework. As the study is based on the perceptions of businesses, policy-makers can also focus on these factors to attract businesses to specific countries or regions. Originality/value The study is an original research study. The study adds to the existing academic literature and is expected to help policy-makers and senior managers in focusing on specific aspects of business environment when developing policies or taking market entry decisions.